Portugal Not a Significant Risk to Euro Zone, Fitch Says

Feb. 1 (Bloomberg) -- Portugal doesn’t present the risk of
default that Greece does to the rest of the European Union
because officials there are seeking to contain the nation’s
financial crisis, according to Fitch Ratings.

“The government there is committed and credible. The
economy is highly indebted, but they are working on organizing a
debt-for-equity swap,” David Riley, head of the sovereign-debt
unit at Fitch Ratings, said at a conference in New York today.
“That is the right strategy and in the near term we don’t see
them as a significant risk to the rest of the euro zone.”

Banks in Germany, France, Belgium and the U.K. have the
least periphery exposure to Portugal, excluding Ireland, among
the debtor nations at the heart of the region’s financial
crisis, according to data provided by Fitch at a presentation
today. Riley wasn’t immediately available to elaborate on a
possible debt-to-equity exchange.

Greek bondholders are being pushed to cede more ground
after agreeing in October to take a 50 percent cut in the face
value of more than 200 billion euros ($263 billion) of debt.
European Union leaders are seeking the concession as the
International Monetary Fund projects that Portugal’s gross
domestic product will contract 3 percent in 2012.

Portuguese yields have fallen for two consecutive days
after the 10-year yield closed at a euro-era record of 17.393
percent on Jan. 30. Riley attributed the rise to decision by
Standard & Poor’s to follow Fitch and Moody’s Investors Service
in downgrading Portugal’s credit rating to non-investment grade
on Jan. 13.

Portugal’s borrowing costs declined today at a sale of 750
million euros of bills due in July 2012 at an average yield of
4.463 percent. That compares with an average yield of 4.74
percent at a previous auction of similar securities on Jan. 18.
The auction attracted bids for 2.65 times the amount sold,
compared with a bid-to-cover ratio of 2.97 in January.

The nation’s debt agency, known as IGCP, also sold 750
million euros of three-month bills due in May at an average
yield of 4.068 percent, attracting bids for 2.8 times the amount
offered. That compares with an average yield of 4.346 percent at
a previous auction of three-month bills on Jan. 18, and a bid-to-cover ratio of 4.1.

The Jan. 18 sale also included 1.25 billion euros of 11-month bills. The last time Portugal sold securities of that
length was April 6, before the nation sought a rescue last year.